week 7 Please help Should governments tax all negative externalities and subsidi
ID: 1130337 • Letter: W
Question
week 7
Please help
Should governments tax all negative externalities and subsidize all positive
externalities in order to get an efficient outcome for society? For example:
1. A column in the 2013 New York Times had the headline, “Should We Tax People for Being Annoying?”
a.Do annoying people cause a negative externality? Why? Should they be taxed?
b.Do crying babies on a bus or plane cause a negative externality? Should the babies (or their parents) be taxed?
2. Do people who plant flowers and otherwise have beautiful gardens visible from the street cause a positive externality? Why? Should these people receive a government subsidy?
3. Should every negative externality be taxed, and every positive externality subsidized? Explain.
4. How might the government decide whether using Pigovian taxes and subsidies are appropriate?
Explanation / Answer
It is true that an efficient outcome in the society can be achieved if negative externalities in the society are taxed and positive externalities of the society are subsidized. This will reduce deadweight loss of the society and thus efficient outcome of the society can be achieved. However, it is not necessary for the government to tax all negative externalities. Only those that cause harm to the society should be taxed. For instance, emitting harmful gases in atmosphere by industries, disposal of wast in the rivers , usage of loudspeakers which increases noise pollution etc.
Thus, as mentioned in the question above, there is no need to tax annoying people or babies crying in bus or plane as it is not causing any harm to society. Thus, only those activities which cause harm should be taxed. On the other hand, merit goods in the form of education which creates positive externality for the society should be subsidized.
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